Milton Friedman's quote is apt here: "With some notable exceptions, businessmen favor free enterprise in general but are opposed to it when it comes to themselves."
"Their [those who live by profit] superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction, that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always in the interest of the dealers...
"The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order or men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."
Adam Smith, The Wealth of Nations, Chap. XI, Part III, "Rent of Land: Conclusion".
What happened to free market economy? How are americans totally fine with a company being denied its ability to sell its product to its end users?
What happened was: The car makers used their position of power over the dealerships - power they had as a result of the free market economy, more or less - to screw them over. The dealers fought back with custom legislation.
It's been this way for 70+ years now. The "free market economy," then as now, turns out to be its own worst enemy.
The dealers chose to enact legislation rather than quit a business model that was being squeezed by their supplier. Find me a business that doesn't squeeze suppliers and vendors to increase their bottom line. The worst enemy of the free market isn't itself, its the crony capitalism that takes place when government gets involved. Its rare (if ever) that the intentions become the outcomes.
Find me a business that doesn't squeeze suppliers and vendors to increase their bottom line
Are you saying the dealers were not within their rights to fight back and defend their piece of the supply chain? Or are you saying that using legislation was "cheating"? I'm a little confused.
> It's been this way for 70+ years now. The "free market economy," then as now, turns out to be its own worst enemy.
You have it backwards. The problem that we have today is a result of not letting the free market be free 70+ years ago. The article you link to says GM "forced" dealers into buying their cars during recessions despite having little chance of selling them. Bologna! They didn't force anything! The dealers had zero obligation to buy their cars. What should have happened is we should have let the free market destroy those dealers. Destroy the dealers that bought cars without being able to sell them.
And you know what? You know what would have happened if all of GM's dealers went out of business after being "forced" to buy their cars. GM would die! Good! GM needed it's dealers to sell their cars. It's a balancing act that the free market easily could have handled but the dealers and legislators took the selfish way out. We would have had direct car sales decades ago if it wasn't for anti-free-market legislation.
The moral of the story, let the free market be free and avoid the shit show that will always without fail happen as a result. (See: Uber)
You have it backwards. The problem that we have today is a result of not letting the free market be free 70+ years ago.
Well, okay, but absent a time machine, you can't fix that. Any solution that starts with "well you should have thought of that before" has already failed. Mistakes happen; a system that can't tolerate mistakes is a system designed to fail.
And in this case, it was the actors within the market (the dealers) that decided to make the market less free. They did it out of their own perfectly rational self-interest, and damn the consequences. Something like that is always happening, will always be happening. The "free market" is always full of actors working to make it less free.
Bologna! They didn't force anything! ... GM needed it's dealers to sell their cars.
"Do what I want, or face an existential threat" is pretty much the dictionary definition of "force." The big auto makers were able to do this sort of cram-down because they apparently didn't value their dealers.
> "Do what I want, or face an existential threat" is pretty much the dictionary definition of "force."
No person faced an existential threat from that. Businesses on the other hand face existential threats all the time. Every time you don't buy something from a business you are, by you definition using "force" against them because they could go out of business without customers.
Well, okay, but absent a time machine, you can't fix that. Any solution that starts with "well you should have thought of that before" has already failed. Mistakes happen; a system that can't tolerate mistakes is a system designed to fail.
Sounds like a great ad for more free-market solutions ;)
"Do what I want, or face an existential threat" is pretty much the dictionary definition of "force."
I'll concede that point, but the whole point of a free market is that you can't force anyone to do anything. If a deal isn't mutually beneficial then people don't agree to it. Simple as that. I use "force" everyday when I continue to not buy products from companies I don't like and help drive them towards change or extinction.
Sure, some people have more leverage than others, that is always the case. But that doesn't matter.
You're biggest mistake is thinking that it is bad when one party has a lot of say over another party (like McDonald's over their cashiers). It's not. That's called cutting out the middle man. If I can continue to do business without the little guys, or only need a few little guys anymore, I'm going to negotiate a less favorable deal with them or cut them out entirely. This is what drives progress. Eventually the big guy no longer needs the little guy, great! Cheaper products for everyone! As the big guy has more say, and it becomes worse to be a little guy, the little guys leave. A balance is reached. This is how free-markets operate. Creative destruction always hurts some people, but in the end we all prosper (when robots take all our jobs social assistance is necessary but the point stands)
Do you think GM would have negotiated such a bad deal with the dealers if the tables weren't beginning to turn in GM's favor? Of course not!
...the whole point of a free market is that you can't force anyone to do anything ... That's called cutting out the middle man.
But not forcing out the middle man, no, never that.
Sure, some people have more leverage than others, that is always the case. But that doesn't matter.
Why would a rational adherent to free-market principles lift a finger to obtain the leverage in the first place, if it "doesn't matter?"
Do you think GM would have negotiated such a bad deal with the dealers...
Not sure what deal you're talking about. The dealership franchise laws were not a "deal" that was "negotiated." They were, ahem, something the dealers forced on the auto makers.
1. meh, semantics. Unless they force them out by law, which is no longer a free market by definition. Also, for clarification, the dealers are the middle men. They were not forced out. Quite the opposite. They are now forced in.
2. Doesn't matter in terms of morality, not in terms of best business practices.
3. The deal that said "buy our cars now in the recession or we won't sell anymore to you in the future." not the law that resulted: "manufacturers must by law sell to any official dealer and cannot sell directly"
I believe 'levers of power' arise by entities exploiting simple liberties which are given and assumed in a free economy. Once those liberties are hedged and protected from use by others, we scramble around trying to figure out how to get the lever away from the entity who holds it.
I like the metaphor... whats interesting is the people complaining about the monkeys with sticks and rocks were the ones who gave the monkeys the sticks and rocks and now are sore about it.
The problem is the state is for sale to the mega-corporations at the top of each industry. Laws and protection rackets are instated as you can see in the car dealer industry which is heavily regulated.
This isn't free markets eating itself, it's the dangerous hazards of mixing free markets with an over-bearing state, that modern economies have chosen as the primary operating model. Aka Neoliberalism. https://en.wikipedia.org/wiki/Neoliberalism
It ultimately results in: you can have a free market, but after you get to a certain size you have to have friends within the state.
Your comment sounds sarcastic, but I don't see anything strange about the statement that the solution to problems of a constrained market is to make it more free.
This isn't free markets eating itself, it's the dangerous hazards of mixing free markets with an over-bearing state, that modern economies have chosen...
Dude. You've just described free markets eating themselves.
In this case the "intervention" was at the behest of the actors within the market itself. But somehow it magically doesn't count as an act of the market?
Behest is the key word there. We are not talking actions of actors within the market, but about government interfering with market forces. That does not cease to be the case just because someone asked them to do it.
But if the government was formed by the market actors, and is composed of market actors, and is directed by market actors, are the actions of the government not the market acting on itself?
The government is not part of the market. We do not choose whether or not the government has authority over us, it just does. There is no competition, no _market_ there. Without that distinction I cannot think of anything that would qualify as outside of the market and the term would become meaningless.
It would be interesting to build economic models of markets that take into account the capacity of large agents to make changes to the rules that govern the functioning of the market itself (via their influence on the legislative process through lobbying).
I suspect that if such models were studied seriously, economists would have a much less rosy view of the wonders of the free-market economy. And the same goes for the benefits of a democratic system versus other forms of government.
Because lobbying is not the exception - it's absolutely standard.
I don't quite understand why you think that a model which shows that lobbying government leads to economic inefficiency would lead to skepticism in the wonders of a free-market society. It seems like quite the opposite should happen.
Of course, in reality it's unlikely that anything would happen regardless of what the economic models showed. The fact that tariffs are inefficient has been widely accepted in pretty much every school economics for the last two centuries, but tariffs are still ubiquitous.
You're definitely right, the ability of either government or business agents to legislate away competition must be banished from the realm of the economy. If you don't do that, you won't keep a free market.
However, lobbying is not a problem of the free market. It's a failure of establishment of one.
If such models were studied, and one were actually trying to make a free market work, it would encourage a specific law that should have been installed with the separation of church and state: the separation of state and economy.
It should exist for the same reason the church is separated from the state, they can do nothing but corrupt each other.
Start with something along the lines of: 'the government may pass no law impeding free trade' and or 'the government shall have no power to regulate commerce' - and go from there. The interstate commerce act of 1887 was one of the first major anti-free market laws the US Government pushed through.
> Start with something along the lines of: 'the government may pass no law impeding free trade'
I might be misunderstanding you by thinking you just said that the government should never regulate trade; to dispel my confusion could you please explain how your idea of state/economy separation will handle coordination problems? How will it avoid tragedy of commons, or other race-to-the-bottom kinds of situations?
I'm not adventured, nor do I care to give my opinion on the issue, but two proposed solutions are:
1) Fixing the commons by eliminating them - grant property rights to the users which align their incentives with a longer-term health of the "thing" and allow markets to emerge.
In addition to the acknowledged limits, this also seems to gloss over what I see as the big problem with pollution controls based on property rights, which is many-to-many pollution. A massive coal power plant that poisons the surrounding air is easy enough to sue, but how do you handle something like the LA smog of old, with millions of individually-owned cars each contributing a tiny bit to the problem, but no one entity playing any major role?
I think he sort of touches on that when he talks about how the approach doesn't work on a global scale. It's fundamentally similar: when it's one coal plant, you can deal with it, but how do you sue a million coal plants all over the planet each one contributing a small part? But I think it falls apart even at the local level when pollution from individuals becomes significant, as easily happens now.
Privatize the roads and make the owners responsible for the pollution. Then they'll pass the costs to the drivers with a toll (which can be non-stop). Cleaner cars would probably get a discount, too.
Seems like you'd either have lots of road owners each owning small bits of road, which puts you back in the many-to-many problem, or a small number of owners each with a lot of roads, at which point they basically become local governments.
As I wrote in the other post, this is just one idea. Don't assume there aren't better proposals by people who actually thought about it for more than a few minutes :)
That said, the many-to-many transactions don't seem a problem to me considering that homes and roads are fairly static. AirBnB alone manages 375000 people sleeping on homes owned by another dozens or hundreds of thousands of people every single night.
This kind of transaction, on the other hand, would probably just happened once a decade, if that.
I understand there may be better ideas, but this is the one you wrote, and it's the one I'm replying to.
You're right that many-to-many transactions are workable in general. However, they're workable when both participants are willing. For pollution, only one participant is willing. The polluter doesn't want to pay damages, you have to force him. Many people can come together to force one entity to do something (class action lawsuits) and one large entity can exert its power to force many people to do something (government), but it's really hard for many people to force many other people to do something. When both the source of the pollution and the damage it causes is spread out, the cost of enforcement overwhelms the damages. Imagine a metro area with 100,000 road owners who are being held liable for pollution-related damages to five million local residents. How do the individual residents collect, when the individual road owners don't want to pay? Do they sue each one for 1/100,000th of 1/5,000,000th of the total damages in the area? Traditionally, this is solved by the local residents organizing and then exercising power through that organization, i.e. government.
As I said, this is just the first solution I could think of. Advocates of Free Market Environmentalism - which I'm not - may have much better solutions.
I'm not sure how well this would actually work, but someone (or group of people) would own the air/water quality. In order to pollute you would have to come to an agreement with them and pay the agreed upon value of the damage to their property.
The main trouble I see with that is that they'd have a monopoly, and that causes all sorts of trouble. When you get down to it, your proposal is basically what we have now, where that group of people that owns the air/water quality is the government. I don't think they technically own it, but given their ability to set standards, fine people for violations, etc. it ends up as more or less the same thing.
Just to be clear, this is not my proposal. I like the concept of markets determining the cost of various things. I would prefer that the government auction off pollution rights each year, that way the government holds thew monopoly and determines the cap, but we still have reasonable pricing. No matter how little you polluted you would still have an incentive to pollute less.
What we have now is free pollution up to an arbitrary point where it becomes very expensive (because it is illegal). The obvious dominant strategy in the current system is to not care about pollution unless you are near the legal limit.
Air pollution on a large scale (i.e. anthropogenic climate change) is a particularly difficult problem, whether you've got a laissez-faire free market, a global society like today, a world government, or any other system I can imagine.
That's an excellent comment! I had some classes of economics (Msc level), but I have never heard of that. If you think in terms of game theory where the actors are the big companies, and have the choice between lobbying and not lobbying (let's say they have some money they can either invest in R&D, either in lobbying), you can see that the Nash equilibrium will push the actors into lobbying.
Very often our discussions on these topics tend to dwell on the supposedly unethical behaviour of this or that corporate actor. Instead, maybe we should recognize that incentives to lobby (and sometimes, to cheat and bribe), are built into the system, and focus on changing the institutions so that such incentives are removed. And in this area, modelling could play a big role.
Since we're talking about a feedback loop, rather than a straight-line system with a start and an end, there is no "right" place to intervene; we have to adjust every entity in the feedback loop together.
A lot of popular debates come down to people treating a feedback loop as a straight line, and picking different points on the loop as starting points. Some examples: nature vs. nurture, lobbying vs. corruption, chemistry vs. thoughts (e.g. in cases of depression).
You bring up good points, but just so you know free-markets by definition are no longer free after legislation.
I.e. economists would have a much less rosy view of the wonders of the free-market should be economists would have a much less rosy view of the wonders of NON-free-markets
Given that you're misunderstanding free markets and reality, I'd say it's quite likely you're misunderstanding the post you're replying to as well, yes.
Wouldn't the offices of the demarchy accrete long-held staff positions and/or outside consultants to compensate for the office holders' inexperience? And wouldn't those staff members and consultants be vulnerable to lobbying?
Even if we went straight to direct democracy (which I like in theory, as well as I like the idea of demarchy), the special interest with the biggest advertising budget would win.
I wonder, could an elected technocracy (by which I mean different governments and representatives for different spheres of influence) solve this by limiting both the tyranny of the masses and the influence of any one corrupt official? Or would whatever process controls the final budget still have enough power to corrupt the system?
The view of economists (excepting the fringe laissez-faire and Libertarian / Austrian school) is and largely always has recognized the limited applicability of markets, and of the relationship between wealth and power:
Adam Smith, Wealth of Nations: "Wealth, as Mr Hobbes says, is power."
Later:
The exclusive privileges of corporations, statutes of apprenticeship, and all those laws which restrain in particular employments, the competition to a smaller number than might otherwise go into them, have the same tendency, though in a less degree. They are a sort of enlarged monopolies, and may frequently, for ages together, and in whole classes of employments, keep up the market price of particular commodities above the natural price, and maintain both the wages of the labour and the profits of the stock employed about them somewhat above their natural rate.
On bargaining power between labour and capital ("masters"):
The masters, being fewer in number [than labour], can combine much more easily: and the law, besides, authorises, or at least does not prohibit, their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work, but many against combining to raise it.
...
We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals. We seldom, indeed, hear of this combination, because it is the usual, and, one may say, the natural state of things, which nobody ever hears of. Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy till the moment of execution; and when the workmen yield, as they sometimes do without resistance, though severely felt by them, they are never heard of by other people. Such combinations, however, are frequently resisted by a contrary defensive combination of the workmen, who sometimes, too, without any provocation of this kind, combine, of their own accord, to raise the price of their labour. Their usual pretences are, sometimes the high price of provisions, sometimes the great profit which their masters make by their work. But whether their combinations be offensive or defensive, they are always abundantly heard of. In order to bring the point to a speedy decision, they have always recourse to the loudest clamour, and sometimes to the most shocking violence and outrage. They are desperate, and act with the folly and extravagance of desperate men, who must either starve, or frighten their masters into an immediate compliance with their demands. The masters, upon these occasions, are just as clamorous upon the other side, and never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combination of servants, labourers, and journeymen. The workmen, accordingly, very seldom derive any advantage from the violence of those tumultuous combinations, which, partly from the interposition of the civil magistrate, partly from the superior steadiness of the masters, partly from the necessity which the greater part of the workmen are under of submitting for the sake of present subsistence, generally end in nothing but the punishment or ruin of the ringleaders.
As for modern economics and markets, there's Coase (eponymous theorem on market extermalties), Olson ("Logic of Collective Action"), and Akerlof ("The Market for Lemons") and a whole slew of other market failures:
The Economic Freedom Index is an index created by the Heritage Foundation itself, not some law of nature. As such it's basically political opinion - how is the organization's political leanings/bias exempt from scrutiny in this case?
Edit: from Wikipedia:
> An ad hominem (Latin for "to the man" or "to the person"[1]), short for argumentum ad hominem, is a general category of fallacies in which a claim or argument is rejected on the basis of some irrelevant fact about the author of or the person presenting the claim or argument.
Note that "irrelevant fact" does not really apply here since the political biases of an organization publishing a political index are very much relevant to the discussion.
The position that more government spending always means less freedom is a political one, as is their choice of growth curve.
> The scale for scoring government spending is non-linear, which means that government spending that is close to zero is lightly penalized, while levels of government spending that exceed 30 percent of GDP lead to much worse scores in a quadratic fashion (for example, doubling spending yields four times less freedom). Only extraordinarily large levels of government spending—for example, over 58 percent of GDP—receive a score of zero.
Now we see that that economic freedom in this case actually means freedom for employers to exploit their workers, with negative factors like "rigidity of hours" being determined by paid vacation days. Yet nowhere are factors like regulations on non-compete and no-moonlighting employment clauses factored in. So again a political opinion on what freedom of labor means - the freedom to exploit labor rather than the freedom of labor to seek work or change jobs.
Ad hominem circumstantial points out that someone is in circumstances such that they are disposed to take a particular position. Ad hominem circumstantial constitutes an attack on the bias of a source. This is fallacious because a disposition to make a certain argument does not make the argument false;
Essentially, you can't discount everything a particular entity says because you or others perceive them as biased. If you disagree with their position, attack the position, not the person.
The position was given without any argument other than authority (of Heritage Foundation). It such cases questioning the authority you just invoked is very natural and good thing for the discussion. If you want discussion about specific arguments, give the arguments (which original poster hasn't provided). You can't expect to just claim something basing it on authority and having other side investigate every point in reasoning that authority gives (and even have them explore and find points themselves) as it puts discussion in imbalance: you do nothing, but invoke authority, the other side is expected to dig deep into every point that authority makes. On the other hand if it's shown that the authority is very biased then either you show specific arguments (which the other side is not allowed to dismiss on bias of the source) or you admit defeat.
That's the way to deal with arguments from authority but some posters were very charitable anyway and gave more analysis than original claim deserved.
Ad-hominem refers to dismissing specific points/arguments based on who made them. Dismissing an argument from authority this way is actually correct way to handle it. The difference I hope is obvious.
The other poster is wrong, misuses common terms and to top it is arrogant about it that's why he is downvoted.
Just posting a link doesn't disprove the point. The methodology is completely based on their ideology.
"The property rights component is a qualitative assessment"
They score the US as an 80. Based on their own ratings, I think the US should be a 90.
The [Fiscal Freedom] score is derived from three quantitative factors:
The top marginal tax rate on individual income,
The top marginal tax rate on corporate income, and
The total tax burden as a percentage of GDP."
That is pure ideological bullshit. Total tax burden as a % of GDP is an actual measure, but why is the only marginal tax rate that matters the top one? The difference in marginal tax rate is actually larger at other steps in the US Tax code, but they want to focus solely on the top one? Also, why measure the marginal corporate tax rate but not the effective corporate tax rate (as they correctly do for personal taxes).
The "Business Freedom" index is trying to measure how much regulation there is - which is what you would think this entire ranking is about. It does a pretty poor job of it, though I think this is a hard task.
It goes downhill from there. Thanks for the providing the link, it proves the original point that the index is ideological nonsense very well.
The methodology you linked to might as well be called "how to lie with numbers".
The methodology's way to assign numeric values to things doesn't relate to intrinsic things about the objects under study, but rather, is a numeric score reflecting the subjective opinion of the reviewer.
That something uses numbers doesn't make it objective, and this is a prime example.
> The methodology's way to assign numeric values to things doesn't relate to intrinsic things about the objects under study
Keep reading. They explain the intrinsic things that make up the numbers they assign to the objects. Eg:
"Each country’s property rights score is assessed according to the following criteria:
100—Private property is guaranteed by the government. The court system enforces contracts efficiently and quickly. The justice system punishes those who unlawfully confiscate private property. There is no corruption or expropriation.
90—Private property is guaranteed by the government. The court system enforces contracts efficiently. The justice system punishes those who unlawfully confiscate private property. Corruption is nearly nonexistent, and expropriation is highly unlikely."
Those are subjective criteria, to decide if a country not only "efficiently" settles a matter, but it also does so "quickly".
Similarly, there's not a single country where we'd find there is literally "no corruption", which means it's just a subjectively strong form of "nearly nonexistent", or where we'd find there is "no expropriation" ever in its history, as opposed to it just being "highly unlikely" to happen to you.
These subjective differences account for the difference between a 90/100 and 100/100. So if your example was that only 10% of the score depends on the difference between a figurative "no corruption" and "nearly nonexistent" corruption, you've done a very poor job convincing me it's an objective test.
Shorthand pithy summarization is a fundamental building block of human communication, and doesn't constitute a fallacious argument.
Allow me to translate what tobinfricke said:
"The Heritage Foundation is hardly an objective source on the topic of the advantages of the so-called 'free market', considering the fact that they are an organization dedicated principally to promulgating and evangelizing the concept of the 'free market' (by which they essentially mean a market in which the regulatory structures that benefit incumbent businesses are preserved, but new regulatory frameworks that would affect the status quo are discouraged). Oh and, here's a link to some basic information on the topic.
If I were to say to you that Frito-Lay is not an objective source about whether Doritos are delicious and healthy, that does not actually meet the criteria for argumentum ad hominem.
People tend to prefer an unregulated market, when they are challenging an incumbent industry. When they become the dominant one, they kick the ladder down.
Those at the top have more enemies than those at the bottom. When you're on the highest rung of the ladder, everyone below you will plot to depose you and take your place. At the bottom of the ladder it's easy to live in chaos, sometimes the chaos is even your friend, as it can propel you up the ladder. When you're close to top, you have too much enemies to deal with, so you need to create structural solutions that will let you focus on doing something else than just not getting shot down.
This applies equally to companies and to revolutions.
(and this makes me wonder how will the life of Frank Underwood fare in the third season of House of Cards)
The problem is the byzantine nature of the car market in the US.
It's split up in 50 states plus DC. Thus you have all these patchwork set of laws.
It favors the local dealer easily as they get quite cozy with the state legislature and dictate terms. AKA a regulatory capture environment.
The Feds will not touch this issue as it's too much of a political landmine to consolidate the whole market to be regulated on a federal level. Everything else about the car except sales is consolidated (safety, design, emissions, etc)
This is the nature of the Untied States - 50 states doing their own thing as long as the economy is within the borders. See health care, insurance, funeral business, hairdressers, and so on.
The model has its pluses and drawbacks. Unfortunately we are seeing the drawback with Tesla.
The only option I think is for Tesla to focus on their online presence and in the long term people will develop habits of buying a car through that way. Then maybe finally the stupid dealer cartel will die off.
We're not seeing the drawback; we're seeing the benefits. The system is designed to corrupt itself in little pieces, with citizens being free to share information and compare notes about how all the little pieces work. That's a beautiful system that, as far as I know, no other country has tried.
So Georgia screwed the pooch on this. A newspaper in CA writes an article, and folks from the other 49 states get angry. Some folks may move out of Georgia. The lawmakers there -- no matter which party they are -- get embarrassed. They don't do that again. They probably retract whatever they did.
Compare that to a winner-takes-all system, where one party is in control. You have one adjustment, sometimes only made after years of fighting with the minority party. It doesn't work, or it's crooked, or whatnot. There are no comparisons. There are no other places to go if you don't like it. There is no pushback from all the political parties to make this go away. Instead it's just circle-the-wagons time.
This, and a few other stories in technology like it, are powerful examples of how a loosely federated and decentralized system can easily outperform every centralized system of governance there is. Cool stuff.
Tesla might get away with it now, but in the long run many people aren't going to buy a car without test driving it or at least getting inside and feeling around. Some buyers will purchase purely on looks and nothing else, but others want to buy the way the car feels, how much storage is inside, or how it drives.
Then again, it might depend on the return policy. My wife buys tons of clothes online and returns all the stuff she doesn't like due to the retailer's free return policy.
They already separate test drives from purchases somewhat. I test drove one last year in Maryland and the guy who handled it was careful and explicit about never, ever discussing anything like an actual purchase of the car, because that would be illegal. He wouldn't discuss prices or ordering or anything of the like, he was just there to let me drive the car and tell me all about the actual equipment.
This is obviously stupid, but if it's legal then it solves the problem of needing to try before you buy online. Well, mostly. Some people will want to try the actual unit they're going to purchase. A reputation for quality and a good warranty should be able to overcome that with time.
>A reputation for quality and a good warranty should be able to overcome that with time
I'm not so sure about that. Regardless of the reputation of a brand, people have different tastes when it comes to cars. It's hard to know whether you'll feel comfortable driving a car, like the way it handles, and so on just because it has a good reputation, because different people have different tastes (which they may not understand well). I think taste is the main reason people test drive a few cars before buying, even if they know the reputation of chevy/toyota/tesla going in.
You misunderstand that sentence. The "that" which is overcome with a good warranty and a reputation for quality is the need to test drive the exact unit you're going to buy. Tesla's test-drive-then-order-online approach takes care of trying out the model of car, seeing how it drives, etc. What it doesn't take care of is finding out that the specific unit you actually purchased has an annoying squeak somewhere or explodes when you hit 45MPH.
That makes more sense. I don't think that's unique to Tesla. If I'm not mistaken, people already occasionally test drive, say, a Chevy Malibu then decide to have the dealer order another Malibu with a specific option set, color, et cetera. With new car purchases (but obviously not used car purchases), it seems that it's not so much about test driving the exact unit.
I imagine it varies depending on the person, and maybe the brand. Some people will want to test drive the exact car they're going to buy, while others will be happy trying out the model and trusting that their unit will be the same. When I bought a new car last year, I appreciated being able to test drive the exact car I bought, although it definitely wasn't necessary. In any case, I don't think it's a big problem, just the only one I can see that would potentially remain with a test-drive-then-order-online approach.
Y'know, given the conflicts of interest of auto salespeople, examining the merchandise from someone who doesn't have a vested interest in the sale, but does want to convey accurate information, would be a Good Thing.
When I bought my most recent vehicle (a purchase I'm largely happy with), I asked the (young and apparently inexperienced) salesman about a couple of features and he gave answers which were clearly bullshit. He'd have done far better to state that he didn't know.
One was mis-identifying the front-bumper transport tiedown hook cover as a sensor. Not a big deal, but so obviously bogus, after the fact, that it left a negative impression on the overall experience.
All they have in common is that they're heavily regulated at a local level. A doctor's medical license is only good in one state, and he has to get recertified if he wants to practice elsewhere. With insurance, you can't shop across state lines. (In fact, one of the more reasonable Republican proposals for an alternative to Obamacare is to allow people to buy health insurance across state lines to open up competition.) Similarly, hairdressers need local licenses and are subject to local regulations. I presume funerals are the same, but I'm less familiar with them.
For examples the other way, consider electronics (there are some warranty regulations like rules around lightning damage in Florida, but I believe it's pretty minor by comparison) or aviation (the FAA handles just about everything, and local governments pretty much just leave it be besides taxing you if you keep an airplane in their jurisdiction and maybe set up some rules about noise).
As far as what causes an industry to fall into one category or another, it seems to be largely random, but I'd hazard a guess that a lot of it has to do with when the industry arose and how important it's perceived to be. The US started out with fairly powerful state governments and that power has been slowly shifting to the federal government ever since. You could probably get a medical license, or something at least vaguely similar from various states before the revolution, but by the time anybody cared about regulating airplanes, the feds were much more in charge.
They are all licensed professions in many US states. Not only do you need a license, as they're usually not valid across states, so a Texas hairdresser can't work in California, and vice-versa.
I know with Android you can, but can you develop for I devices without a license? I understand you're talking government licenses, and that one could jailbreak an iDevice, but can you develop legally without an Apple license?
Sure, you can - the publisher needs an agreement with Apple to publish stuff on App Store; but it's perfectly legal to have a hundred "unlicenced" developers (as in, out of Apple Developer Program) working on that product as long as you've got someone "licenced" to handle the submission process.
And it's also perfectly legal to develop iOS stuff without any license whatsoever, simply then it won't be distributed by Apple in it's store, and will be usable only on jailbroken devices. There's nothing illegal about jailbreaking devices nor about developing for them.
iOS development as such isn't a licenced profession, simply the main distribution channel is very controlled.
It has little to do with logic, ideologies, or specific political or ethical beliefs. It's just really basic economics. Concentrated interests beat dispersed interests.
I'm also surprised that people think America is Capitalistic and or a free market. That seems to stem from image rather than substance.
What happened is a century of regulations, laws, and commingling between politicians, government in general and business.
The US is a heavily regulated welfare state. In this case the regulation is set up to benefit the ever expanding lust for power by the government, and to shield the government protected monopolies in each segment of the economy. Decades ago it was a mixed economy. A century ago it was a near-free market.
I've seen it called everything from fascism-light, to corporatism, to inverted totalitarianism. Whatever you call it, it's anything but a free market.
Well I will give my state this, we are one of the more friendly states towards electric cars. You can spot a Nissan Leaf about anywhere you go and seeing a Tesla, or even one of two Fiskers still about isn't a surprise.
The simple matter here is, Tesla needed to sell cars before the law could accommodate a manufacturer direct sales model. Hence an exemption was carved out, likely at the behest of someone influential, so they could.
Georgia automobile dealerships have way too much power in our state. They were able to shove through without opposition in the legislature a rewrite of taxation on automobile sales. They wanted all used car sales business to themselves and they nearly got it. Now even private party sales of used vehicles are subject to a tax of close to seven percent. Hence, you buy a car from your friend and go to get a tag, you pay that tax based on the assessed value of your car, not what you bought it for. This value is usually lower than trade in value to a dealer, but figure the shock when you buy a 20k car and you need to fork out 1400 for tags.
I am very sure this situation will get fixed quickly. The state wants to appear friendly to tech and manufacturing. Auto dealers, liquor, and cigarettes, are probably the most protected in Georgia but politicians bow to pressure in election cycles to the populace here.
note, the real fear is not Tesla, its that other manufacturers will get to setup stores too.
You think that's a lot of taxes? You haven't been to Uruguay, we have more than 200% taxes.
Example:
Citroen DS4 in Denmark, 274.000 kr (U$ 39.000)
Citroen DS4 in Uruguay, U$ 49.000
Supposedly Malasya is the 2nd most expensive country to buy cars in the world, and the Citroen DS4 is priced at RM 149,888 - U$ 47.000 (still less than in Uruguay)
and in Norway, the most expensive in Europe, it costs kr 283,900 (U$ 45900).
I think the only place more expensive than Uruguay is Singapore.
As long as there is also not a personal property tax on top of the sales tax, the sales tax on the used car makes sense to me, being from New York. The atrocious part, is that the dealer is able to charge only a 4% rate instead of the 6+% rate.
The trade-in reducing the taxable value is also similar to New York, I'm not entirely sure how to make that fair for private party sales; but I find it a bit less concerning.
Potentially if you were to sell and buy a car within 90 days from each other, the sale price could be subtracted from the taxable value that you should pay.
I'm not sure about purchasing used cars, but after 2011 or 2012 all new purchases no longer have the ad valorem annual tax. It's just $20 or so a year to update your vehicle registration now. So the tax is shifted to an upfront tax that's lower (over the life of the vehicle) than the previous ad valorem tax revenue. While I like the savings, I'm not sure I understand where they intend to make up the revenue differences.
It is the same in Georgia, as well, for used cars purchased after the law changed. Rather than paying an annual ad valorem tax on the value of the used car, a value added tax is paid when the title is transferred and the car registered to the new owner. As a Georgia resident, I prefer the new law to the old, with the exception of the loopholes for new car dealers.
I just wish you could option out a car online and click and pay by card(or bank transfer for financing etc) like you do with a computer. Ideally deliver it to your house, but picking it up at a port or a freight rail place or something is also a palatable option.
The notion that if I want car x, in color y, with trim z, I have to shop around and "find one that exists in those options" is not something that should be on me as a consumer.
I'm sure dealerships will custom order a car for you, but that sounds like a pain in the ass and I'm sure they charge you more for the privilege of buying the 20-50k product you actually want.
I have custom ordered a car through a dealership (not a Tesla). I'm pretty sure any dealership will do it. It's pretty standard. And they didn't charge me any more than I would have paid for something off the lot (I was able to negotiate the price the same way). However, it is definitely a pain. I had to wait months and months for the car to show up. I'm not sure if there's a good way around that, but ever since then, I've been much more inclined to just buy whatever is available that's closest to what I want, even if it's not exactly right. I do wish there were a better solution for this.
If I recall correctly, most dealerships won't actually charge you that much more to custom-order a car, because the car won't be sitting on their lot for very long compared to the cars they have to keep in stock and hope they sell.
If its custom, limited run, or high demand, you'll pay at least MSRP, depending on how many other people you're competing against for a small pool of vehicles.
You're referring to the dealership's working line of credit, which is just interest they pay monthly from time of vehicle delivery to sale. For most vehicles, this amount is negligible (unless its been sitting on the lot for months). You could theoretically get a deal on a car they can't move, but the long-term resale value will likely be lower because its an undesired model/color/etc.
In the majority of markets where dealerships operate, the real estate turnover cost per vehicle is negligible, unless you're talking a major metro (Chicago, LA, NY, SF) or somewhere odd like Key West (there's a small Nissan dealership there with limited inventory.
I wonder if Tesla could somehow circumvent these laws.
Open a fake mailbox company in another state. Sell them the cars at production cost, and let that company "import" them.
Actually open a dealership (using another company). This probably won't work, as there might be a lot of red tape involved. Possibly there is a limited number of concessions, or some other hurdle, otherwise they would have done that.
Using middlemen, put Teslas on eBay, Craigslist, etc.. Make it somebody else's problem to deal with.
My favorite: Don't sell cars at first. Just do car shows, Tesla parades, Nikola Tesla tribute parties, and so on. Visit schools and communities and tell people how good electric cars can be for the environment. Partner with schools and driving instructors to get kids to learn driving in Teslas. Get as many people as possible to test-drive one. That's the most important thing. Then just happen to have a iPad around so people can order one :-).
There might be a law preventing them from even selling them over the internet into many states - I don't know if the laws only apply to physical stores or not - but in this case they could fall back to relying on the black market. At least for a while, while they get the legislation sorted out.
Last but not least (and only half seriously) try to frame the current laws as "communist". I picture an ad with thin, sad people in fur hats, waiting in a long line for their car, with hammer-and-sickle ration coupons in their hands. Contrast it with happy free people riding around in their Teslas under the Californian sun. Unfortunately, that might even work.
Tesla already does such things. In many places, they don't "sell" cars. They talk about them, then let you go buy them yourself, perhaps on a computer they happen to have setup right there in the "store".
In Denver's Park Meadows mall, on Sunday they have a big sign saying the State of Colorado prohibits them from "selling", so come on in and sell it to yourself.
I wasn't even sure you could actually buy through a Tesla store. I think they just direct you to the website. I took a test drive of a Model S P85 this weekend and they didn't even discuss the sale just wanted to know what I though overall. Then today someone contacted me about purchasing. I can't afford a Model S anyway but I am not very interested in used Model S lease returns or the Model 3.
I don't agree with enforcing these laws on Tesla. Tesla has never had a dealer network which might need or want protection from a manufacturer undercutting them in a market they worked hard to develop (this is why these laws exist).
Yet at the moment I don't think this really hurts them. If anything its giving them a ton of free advertising and building consumer goodwill. Tesla is a high-line brand. A status symbol. They are not impulse purchases in the way that mainline Fords, Chevys, Toyotas are (i.e. people buying because they need a car, any car, and they liked the color, etc). If you want a Tesla, you know that going in. You aren't going to buy a Leaf or a Volt instead because you think it looks pretty. You don't really even need to see one in a dealer showroom, and for what they cost, traveling a few hours to buy one is not a huge hurdle. Where I live, if I want to buy a new Porsche, a Ferrari, a Maserati, etc. I would have to travel several hours to the nearest city with a dealer.
Your point is valid for the current Tesla model line up. When they finally get down to their "affordable" model then these problems will have a clear effect.
Tesla said the sales restrictions under its license agreement are applicable on a calendar year basis. GADA, which represents 500 dealerships, said in its Aug. 29 petition that Tesla sold 173 sedans in the period from October to June.
So in essence, the law perhaps ambiguously states that you can not sell more than 150 cars in a year. The dealerships are interpreting this as "more than 150 cars in any 12 month span" whereas Tesla is interpreting this as "more than 150 cars in a calendar year". On its face, Tesla has the stronger argument.
If it's not calendar months, then it is almost impossible to make actual sense of. If you wanted to limit yourself to 150 cars per year regardless of the start and end months, then you have to limit yourself to 12.5 cars a month which makes a whole lot less sense. Even still, at the day level you then have to restrict yourself to 0.411 cars a day. Then the hourly level...
Things are made simpler if you aren't close to the limit, but what is the purpose of expressing a limit if you aren't intended to get close to that limit?
for example, let's say you have this sequence (assuming the law is 150/year regardless of calendar months:
12.5, 12.5, 12.5, 10.5, 14.5 , 12.5, 12.5, .....
Boom, you're over if you continue to sell at 12.5 a month. You can compensate for the 14.5 by having another month of 10.5 within 12 months of the 14.5 month, but then you are under the limit within a different 12 month period and can/should have another 14.5 month to make up for it. The pattern repeats itself...
The overall point is that this would be a very stupid way to express a limit and it is far from logical to interpret it that way.
Here is one thing I just don't understand about these laws. I know they're setup to protect dealerships, but can't Elon Musk spin off a side company that is basically a car dealership company only?
They could presumably enforce on a franchise level salaries instead of commission and fixed pricing, though. That'd address most of the problems in dealerships.
Apparently one of Tesla's concerns is that they do not want their cars to be sold by anybody who also sells other cars. They don't think that electric cars will be treated fairly by sales staff that also have the opportunity to sell ICE cars.
Maybe they could put terms into their hypothetical franchise setup to forbid franchises from also being dealers for other companies, or sharing sales staff/floor space with another dealership. I'm not sure about that though.
Other way around. Right now, every tesla sold sells for MSRP. If independent dealerships could purchase at wholesale prices, they'd be able to undercut tesla by selling for less than MSRP.
Keep in mind that for the dealers, this is a life or death existential fight. If Tesla wins, the other car manufacturers aren't far behind.
For Tesla, it's not significantly more important to their success than overcoming general disinterest in electric cars, figuring out how to manufacture batteries for less money, or any of its other business challenges.
Exactly, which is why I never understood why people demonize these car dealerships, yes they are an unnecessary middle man, yes they are annoying to deal with but they are only doing what is logical.
People demonize these car dealerships because after dealing with their sneakiness and incompetence for years, only two words come to mind at the thought of their demise: Good riddance. If your typical car dealership experience was pleasant, there would be some bleeding hearts speaking out in their defense.
e.g. why on Earth would anyone hate the existence of physical Apple stores, for example? (which fits the description of "a manufacturer vertically integrating all the way from building [PC's] to running stores.")
The original purpose of these laws was to prevent a manufacturer from selling direct in a market that a dealer had developed. The dealership model allowed manufactures to expand much faster and with less risk than if they had sold direct everywhere. Once the dealers developed the market, there would have been a large incentive for the manufacturers to simply open up a local direct outlet and keep all the dealer commissions themselves.
Tesla has never had a dealership network, so I don't see why this should apply to them. But that is why these laws came to exist.
I have a feeling the US auto retailing comples will become a canonical example of various concepts for Econ textbooks for a long time. Austrian creative destruction, regulatory capture. I also think there might be room for new concepts such as regulatory accumulation and you could find some good examples of this here too.
For anyone who knows the ins and outs of the system.. What prevents a dealership from setting up a base in an unregulated state and selling new cars directly to consumers everywhere in The States using fixed pricing. No showroom, test drive or salesman costs. Just a website with a price and trucks that deliver the cars.
Is there no usage loophole created by interstate commerce? Aren't all these laws local?
You can buy cars online in the US. And Tesla does sell its cars that way. This is about whether Tesla is allowed to run Brick and Mortar stores in various places in the US.
Can carry 6,000 lbs and the cost of $1,000 per flight hour total isn't a terrible price, it's far more expensive than just putting the vehicle on a truck for delivery of course.
Oh, I didn't say/mean that it had to be a quadrocopter/multi-rotor vehicle... I was just saying that it'd be a pretty large vehicle. While it's a cool idea, I suspect that a lot of people would be very wary of something of that size flying around their house/building without a human pilot onboard. It's basically the "not in my backyard" syndrome.
https://www.youtube.com/watch?v=86pcTLJTvUw I think the comments below the video are pretty expressive how the consumers feel about the topic. Never seen a video that has this much downvotes (compared to upvotes) on YT.
Electric vehicles are huge here in Georgia. We have state tax breaks on the purchase of EVs that make the vehicles effectively free [1] for many commuters. Anecdotally, one of my coworkers just bought a leaf because of the tax credit.
Guess who wants to stop the state EV tax credit bill? Shouldn't come as a surprise that it's the same dealer lobby [2] mentioned in the Tesla article.
I'm one of those anecdotes. Between tax credit and gas savings it's free for a 2 year lease (tech is changing enough you don't want to keep one longer than that; expect a glut of used LEAFs in a couple years). You need some cash flow to make it happen, but net cost is $0.
Car dealerships and the three tier alcohol system seem so archaic and anti-consumer, both amaze me in their longevity and the amount of money that must be getting put into them to retain the hold.
Nobody seems to care about these laws until some high-profile company starts breaking them. 10 years ago where was the outrage that GM wasn't allowed to sell SUVs directly to customers? Where was the outrage that ordinary people (ie creeps) weren't allowed to put a "taxi" sign on their car and start picking up strangers at night for money?
GM, Ford, Chrysler, Toyota, Honda, Nissan, et. al. have already accepted an up-front fee in exchange for franchise agreements; so the franchise laws in that case protect the initial investment of a franchisee.
There actually was some debate over selectively cancelling franchise contracts during the GM and Chrysler bankruptcies.
People have always complained about the taxi regulations. Articles in major newspapers, reports by the Federal Trade Commission arguing for the elimination of the most important regulations (such as the medallions system), a lawsuit from the Institute for Justice against the Denver Taxi Commission, etc.
But to get most people to care, you need to show them the alternative. Economic theory, valid or not, doesn't breed outrage.
The irony of a "free market economy" is that businesses are free to lobby the government to get favorable rules and in large part they win. So, a successful business will eventually create enough red tape that they rig the game so that only they or other companies with enough money can compete.
They should just sell through an app, Uber-style. Then no local laws would apply to them because internet. Rename the store the "showroom" and the dealers into "comfort consultants."
no, but they can open a show room. Where there would be computers that people could use to order Tesla's online. Also, that would probably mean less money for the state of Georgia, since the taxes would be paid in another state.
What about setting up show-rooms everywhere so people can see the product, but only sell online? Would that get around all these local dealership laws?
What happened to free market economy? How are americans totally fine with a company being denied its ability to sell its product to its end users?
And it's probably the exact same people later chanting that Europe is communist...